TURKMENISTAN AND RUSSIA WORKING OUT GAS BARTER

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000470 SIPDIS SCA/CEN; EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 04/13/2019 TAGS: PGOV EPET EINV TX RS SUBJECT: TURKMENISTAN AND RUSSIA WORKING OUT GAS BARTER DEAL, AND HAGGLE OVER CASPIAN LITTORAL LINE Classified By: Charge Richard Miles for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: EU TACIS Program Manager, Michael Wilson, provided some additional detail on April 10 regarding Turkmenistan's proposal to exchange a substantial portion of the value of its exported gas to Russia for goods and services. The deal could be a good one for Turkmenistan, if officials can negotiate effectively to maximum benefit. It might be tougher to barter for the construction of the planned Pri-Kaspiyskiy pipeline, a $1.3 billion dollar effort on which the two parties have still not come to agreement. END SUMMARY. ¶2. (C) Political Officer spoke with longtime resident and EU TACIS Program Manager, Michael Wilson, on April 10 about the tempestuous economic relationship between Russia and Turkmenistan. He said that Gazprom owed Turkmenistan a lot of money for gas delivered in past months, but had only paid up just prior to President Berdimuhammedov's official visit to Moscow in late March so that it wouldn't derail the talks. MORE ON A BARTER DEAL FOR GAS ¶3. (C) Wilson said his contacts in Moscow told him that Deputy Chairman for Economy and Finance Japarov was with the Turkmen President on his Moscow trip and was the engineer of an ambitious trade proposal that was presented to Russian officials. Japarov, whom Wilson said is one of the brighter economic minds in the Turkmen Government, and his staff had done risk analysis on the Russian-Turkmen economic relationship, and had concluded that, given the impact of the global financial crisis, doing business with Russia was now "high risk." Given that the two countries have very strong trade ties and their economies were inextricably linked, Wilson said that Japarov had become convinced that the best thing for everyone in these difficult financial times was for Turkmenistan to offer Russia a barter deal. In exchange for Turkmen gas, the trade proposal suggested that the Russians pay for a substantial portion with goods and services instead of cash. ¶4. (C) Wilson said the deal will benefit the Turkmen because it will give them leverage over the price of goods and services and guarantee a level of trade with Russia, even during the financial crisis. He said the Russians had accepted the offer, adding that an agreement is likely in the early stages, although details remain to be worked out. The Turkmen could potentially barter in this fashion for everything from construction of the Pri-Kaspiyskiy (Littoral) pipeline to consumer products to the delivery of KAMAZ trucks, he said. CASPIAN LITTORAL PIPELINE SOURCE OF DISAGREEMENT ¶5. (C) Wilson also offered some interesting details regarding the status of the Pri-Kaspiyskiy pipeline. He said the pipeline project, which would stretch from Turkmenistan through Kazakhstan into Russia, had been estimated to cost at least $1.3 billion to build. He said that although the three parties had not been able to agree on the terms of a feasibility study, Russia had ordered a study independently. He added that the Turkmen do not want to pay for the pipeline's construction on their territory, and would prefer to have the Russians build it via the gas barter agreement. One of the many sticking points that have prevented the project from getting off the ground, however, is Turkmenistan's insistence that the Pri-Kaspiyskiy be limited to a 20 bcm per year capacity, while Russia wants the pipeline to move 30 bcm per year. ASHGABAT 00000470 002 OF 002 COLLISION OF STRATEGIES ¶6. (C) Wilson said that Russia's goals with the Pri-Kaspiyskiy are two-fold: to minimize the transit countries between Turkmenistan and Russia by cutting out Uzbekistan, and to prevent a supply of Turkmen gas from being available for an eventual Trans-Caspian/Nabucco project. He said the Turkmen are aware of this, and are limiting the quantity dedicated to the Pri-Kaspiyskiy so that there is sufficient gas available to fill a Trans-Caspian line. The Turkmen Government has developed a balanced strategy regarding how much gas goes in what direction, he said. The Turkmen want to limit the total amount of gas going to Russia to 70 bcm per year, and envision a 70 bcm limit to China as well in the longer term. ¶7. (C) COMMENT: Wilson's information meshes with other reports we have heard regarding these bilateral economic issues. The barter deal could be a good thing for Turkmenistan, if officials can negotiate for the maximum in return for Turkmen gas. It seems less doubtful, however, that the Russians would accept a barter deal anytime soon that would put the cost of building the more than $1 billion Pri-Kaspiyskiy pipeline squarely in their corner -- regardless of whether there is a political desire to do so. END COMMENT. MILES